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Privatisation good news for BPCL, bad news for 2 other oil retailing PSUs: Ajay Srivastava

PSU privatisation great for shareholders, govt must run a good process to get good value.

ET Now|
Nov 21, 2019, 10.13 AM IST
Ajay Srivastava-1200
On PSUs set for privatisation, it cannot just be an offer for sale. It needs a proper data room and due diligence because just being listed does not mean all disclosures are there on the table for someone who is going to put in $20 billion or $10 billion in the company, says Ajay Srivastava, CEO, Dimensions Corporate. Excerpts from an interview with ETNOW.

Would the privatisation decision by the government be a big thumbs up for those PSU names or would market likely hang on as these stocks have already run up quite a fair bit?
It is a thumbs up for the markets because at least the process is now on. Earlier, it was an announcement and now it is a process. We are celebrating on the basis that it is a privatisation move and not just a disinvestment like HPCL. Assuming that it is going to be a privatisation and not another HPCL, there is a way to go with the share price.

If it is properly structured, it is a phenomenal asset even today. At this price, it is pretty reasonably valued for any acquisition of this kind. Overall, it is a great positive. The biggest thing to see now is what will be the process by which they will do the divestment. If this is going to be a shot-gun offer for sale, then it leaves only one or two people in the fray -- Reliance and Aramco. If you want a large investment of this magnitude to come in, it cannot be just an offer for sale. It has to be a proper data room and due diligence because just being listed does not mean all disclosures are there on the table for someone who is going to put in $20 billion or $10 billion in the company.

A lot of value has to be discovered as far as the government is concerned. It depends on the process but as far as shareholders are concerned, if it is a pure privatisation, it is a wonderful move. It is a good place to be because it is the first privatisation of “pure retailing company” in this country.

But this may not be good news for the other PSU marketing retail companies because if one gets privatised and two remain with the government, you can imagine what is going to happen to their performance. They will rot if they are not sold quickly. So good news for one, bad news for the other two.

Would you buy PSU stocks today or tomorrow with the assumption that 6-12 months from now, you will be able to sell them higher?
Of course! We are already holding it and we believe that all PSU stocks have been brought down for whatever reason to a valuation matrix which is incredibly stupid in context of the rest of the market. If you are buying PSU stocks, if you are in a safe place they are not expensive even after the runup. The worst case scenario is you get a fat dividend in any case because government will extract either cash from sales or from dividend. It is a safe and to bet on the fact that as the fiscal space gets more constricted, more such sale will happen.

As I said, the question is what the government gets from BPCL and what the shareholder will get post privatisation. This means shareholders sit in a better position than the government. If the government does not run a good process they may not get good value but shareholders will gain eventually.

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